Forgiveness of Student Loans, that is.
Loan forgiveness is the single biggest policy issue that could transform our generation and significantly help the U.S. economy. Conversely, failure to aggressively forgive student loans will have an increasingly negative, potentially disastrous impact on this country as our generation moves through adulthood and into the mythical land of supposed "retirement."
Tonight, a look at loan forgiveness, in terms of the scope of current student debt, its impacts on the economy now and in the future, and why the arguments against loan forgiveness don't hold water.
Kossacks Under 35 is a weekly diary series designed to create a community within DailyKos that focuses on young people. Our overall goals are to work on increasing young voters' Democratic majority, and to raise awareness about issues that particularly affect young people, with a potential eye to policy solutions. Kossacks of all ages are welcome to participate (and do!), but the overall framework of each diary will likely be on or from a younger person's perspective. If you would like more information or want to contribute a diary, please email kath25 at kossacksunder35 (at) gmail dot com
First, I’m going to cover the current state of student debt in this country, and the lackluster status of ongoing loan forgiveness programs. Next, I will cover its potential impact on the economy both short- and long-term, not only in sheer numbers but in terms of how student debt is drastically limiting individuals’ abilities to work in jobs pertaining most directly to the public interest. Finally, I’m going to be joined by a conservative strawman who opposes loan forgiveness, whose meager arguments I will shred like so many monthly statements from my various student lenders.
Student Debt Levels
The numbers are staggering. 65.7% of four-year undergrads exit college with some debt. According to finaid.com, the average debt load is $19,237 per student, excluding any PLUS loans the student’s parents may have taken out. This figure itself is out of date—the most recent National Postsecondary Student Aid Study was conducted in 2003-2004 and is currently being updated to reflect today’s numbers. Let’s put this in a bit of context:
Average Debt Load at Graduation from Undergrad |
Type of School | Percent Borrowing | Average Debt |
4-year Public | 61.7% | $17,277 |
4-year Private | 72.8% | $21,957 |
2-year Public | 33.2% | $9,387 |
If you make the decision to attend graduate school – particularly medical or law school – you’re going to end up in hock up to your eyeballs between your likely BA debt and whatever you took out to get that graduate degree.
Average Debt Load at Graduation from Grad School |
Program | Percent Borrowing | Avg Grad School Debt | Avg Cumulative Debt |
Master’s | 60.1% | $26,895 | $32,858 |
PhD | 40.0% | $36,917 | $41,540 |
MBA | 53.0% | $35,525 | $41,687 |
MSW | 76.5% | $27,136 | $37,029 |
Law | 87.7% | $70,933 | $80,754 |
Medicine | 95.0% | $113,661 | $125,819 |
Education costs are soaring. According to a report from the College Board, tuition and fees in higher education have risen at double the rate of inflation, with the biggest increases coming at public institutions. As I wrote last October, this forces students to either forego or delay their education, or take out more loans. Most students are choosing the loans: according to the Project on Student Debt, the average student’s debt has increased 50% over the past decade – and that figure is even indexed for inflation. The culprit: low interest rates—the same thing that gave rise to junk mortgages and our ongoing housing crisis—combined with drastic cuts in governmental support for higher education. Plus, lower interest rates encourage colleges and universities to raise fees, since students can borrow more money "cheaply."
Students today have little choice but to borrow. As costs have increased so quickly and wages stagnated, it has become impossible for students to really work their way through college.
Today, students who don't want to borrow at higher rates have few other options. Twenty-five years ago, students who wanted to avoid debt could use money from part-time and summer jobs to help pay for college. But since then, college tuition has risen at twice the rate of consumer prices. Tuition has soared much faster than pay has for the kinds of low-wage jobs that students tend to hold.
In 1981, a student could work full time all summer at minimum wage and earn about two-thirds of annual college costs, according to an analysis by Heather Boushey, economist for the Center for Economic and Policy Research. Today, a student earning minimum wage would have to work full time for a year to afford one year of education at a four-year public university — and that assumes she saves every penny, Boushey concluded. – USA Today
Current Loan Forgiveness
The current state of loan forgiveness is completely inadequate to the needs of our nation of borrowers. While I wrote back in September about the Democrats’ overhaul of student lending and legislation that will both cut loan interest rates and increase loan forgiveness, it’s still not enough. Happily, loan forgiveness favors those who work in the public interest—-teaching, particularly in disadvangaged areas and in math and science; Peace Corps, AmeriCorps, and VISTA; lawyers working in non-profit and public interest law; clinical medical researchers—-the Democrats have done a great job of increasing forgiveness for those who, arguably, are clearly giving back to society. However, it doesn’t go far enough, especially since most programs cap total forgiveness at only $5,000.
I’m also bothered by the lack of commitment to forgiving a wider variety of workers' debts. Take educators. Why just those working in low-income areas or math or science? And where’s the forgiveness for people working in higher education? All of my graduate colleagues earned an MA before entering the PhD program, and frankly, professorial wages are pretty bleak as well. It's impossible and unfair to designate some careers as "good enough" for repayment, and others not.
In short: it’s great that these programs exist, they’re a good start. But it’s not enough. We can’t ask every student who wants or needs forgiveness to wholly commit their lives to hard-core public service. Not everyone who needs forgiveness is suited for that kind of work. People may have different aspirations, but that doesn’t make their debt any less worthy of forgiveness.
The Short-Term Impact of All of This Debt
Right now, our country is already suffering because of the tremendous debt load carried by members of our generation. In short, it forces debtors to make major life choices based on their ability to pay off debt. Despite the forgiveness programs above—many of which were implemented in response to this problem—young people are often choosing high-paying jobs over pursuing what they love. Consider this:
In the entire United States, there are perhaps only 15,000 physician-scientists, down from more than 23,000 in the mid-1980's. For years, N.I.H. administrators have been watching this decline with concern, as medical-school graduates, carrying debt loads of $100,000 or more, increasingly choose private practices that are far more lucrative than scientific research posts. -- New York Times Magazine
The entire Times Magazine piece is excellent, and focuses on many students who simply cannot afford the public interest work they want to do. PIRG also has a great report – warning, that link is to a PDF.
Just in the case of medical research alone, think of the potential life-saving cures that are not being researched because doctors are more concerned with paying off that $125K in debt. This has also hurt rural and economically depressed areas, as doctors are less likely to work there given the decreased income and inability to pay off their loans.
This isn’t restricted to just medicine or other professional-school fields—most of us probably know someone who has taken a job simply because it will help them pay off their loans, above all other considerations, even enjoyment of the job. "What Price My Soul" is evidently the number on the loan statement. Some might argue that it’s a fair trade—you got your education, now you just have to designate 5, 10, 15 years of your young-adult life to working a job you don’t like or desire to have a future in just to pay it back. Personally, I just happen to think that we can do better than that, and that our nation’s strongest resource—its people—are being squandered in this manner.
So, short-term, thanks to student debt young people are vastly discouraged from pursuing what they love, choosing instead high-paying jobs that will help them discharge their loans. True, these two things don’t have to be mutually exclusive – one can find a satisfying job that also pays well. However, the problem is that making enough money to pay off these loans becomes the primary concern over satisfaction or professional development.
The Long-Term Impact of All of This Debt
The answer: home ownership, saving for retirement, having children.
The question: what are three things our generation will have to choose between doing in order to pay off our debt?
It sounds dire, and it should. Those of us who spend the first 10-20 years of our adult lives solely paying off our heavy student debts simply cannot also save for a home purchase, and retirement, and incur the costs of having children. Let’s face it, children are expensive, and it costs on average $165,000 to raise a child to age 18--not counting college costs or loss of wages due to child-raising.
The near-doubling in the cost of a college degree in the last decade has produced an explosion in high-priced student loans that could haunt the U.S. economy for years. (snip) Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time. -- AP, via Philly Times
We live in a consumer economy, and with all of this debt, our generation simply won’t be able to keep it afloat like other Americans who have been born since World War II, when the "average" lifestyle and cost of living rose precipitously, along with the tremendous rise in consumer purchasing, and reliance of the economy on continual percentage increases in said purchasing. Now, arguably, a reduction in consumption is vital to the environment, to our health, and to reaching sustainability in our economy. But the way to do it isn't through forcing an entire generation to invest all of their income into student loan repayment.
And forget saving for retirement, or saving for anything. We’re spending all of our "surplus" income (ha) on paying off our loans. Why isn’t it a real "surplus?" Because many young people rely heavily on credit cards to cover basic expenses, simply racking up more, higher-interest debt. (For more on our status as "Generation Debt," see hekebolos’ great Kossacks Under 35 diary Strapped, which talks about this issue in more depth.)
That means we’re not putting the money back into our local economy or national economy to further growth, support new businesses, or even make better choices in terms of more environmentally-friendly products, food, etc. – all of which costs more.
Experts agree that what happened to the sub-prime mortgage industry can easily happen to the student-lending industry, particularly given the proliferation of punitive "private" lenders who operate outside of the same guidelines that cover federal loans. Private loans’ interest rates are much higher—I’ve heard of 10%, 12%--and often have much higher balances, as these are the lenders who step in to cover the costs that exceed what you qualify to borrow from the government. In a for-instance, my private loan for my MA amounted to 60% of what I borrowed. The state and federal loans just didn’t come close to covering tuition, even though I was completely financially independent in paying for my education. And I didn’t even borrow to cover living expenses-I’d saved enough from working to take care of those costs.
Demand for bundled student loans sold to institutional investors worldwide fueled lending to students. The market for private student-loan-backed securities leapt 76 percent last year, to $16.6 billion, from $9.4 billion in 2005, according to Moody’s Investors Service.
The student-loan-backed securities market has yet to suffer noticeable effects of a global credit squeeze that was triggered this summer by a mortgage meltdown of borrowers with risky credit.
"Once the economy starts to slow, you’re going to see a large increase of these people in bankruptcy court," said Robert Manning, a professor at Rochester Institute of Technology who has written about college students and credit cards. A 2005 change to bankruptcy law puts private student loans on par with child support and alimony payments: Lenders can garnish wages if someone doesn’t pay. –- AP, via Philly Times
What’s going to happen to the economy if our generation’s rate of home purchase drops precipitously? What if we can’t save for retirement and/or can’t afford to have a child, let alone pay to educate it?
It’s not hyperbole -- over one third of students in debt just for undergrad are facing over $33,000 in loans. Repaying that $33K over the course of 15 years at 6.8% interest would cost more than $52,000 over the cost of the loan. Money that could be invested in a home, retirement, or the cost of kids. And remember, that’s 15 years of work straight out of college. No time off! No Grad School! No personal emergencies or family catastrophes taking you out of the workforce!
I’m not opposed to work. What I am deeply opposed to is the idea that our futures are drastically constrained by the loan burdens we share. Worst-case scenario: I have a friend who refuses to marry her boyfriend because she has over $200,000 in debt from undergrad and law school—she literally doesn’t want to legally saddle him with her financial crisis. And unfortunately, she works in the public interest, predominantly helping poor women and children in nasty custody and child-support cases, so she doesn’t make a lot of money. (Damn her! Didn’t you hear? Only rich people are allowed to help people for a living.) She’s actually hoping she dies before she pays it all off—if there’s a silver lining to all of this, it’s that your student debt disappears when you kick it.
Defeating the Strawman Arguments Against Loan Forgiveness
For this past section, I’m joined by a Nattering Neighbob of Negativity who opposes loan forgiveness. We’ll call him Bob Negative for short.
Bob Negative: Why should your loans be forgiven? I worked hard and paid mine all off.
Answer: College grads today are facing vastly higher rates of debt due to the unmanageable increase in college costs. See the chart below:
Today, college students and recent grads (within the past 10 years) are victims of a conservative economic system that has literally mortgaged our future through inflation, decreased funding of higher education, and wage stagnation. We simply cannot pay it all offand continue to participate in the wider economy, both in terms of purchasing and working in a worthwhile manner. Either we pay off these loans and the rest of the economy tanks, or we get our loans forgiven and the economy benefits as a whole. Let’s face it: a lifetime of hard work isn’t enough to pay off these loans anymore, not with the high compound interest rates.
Bob Negative: Let’s keep forgiveness as it is now, just helping certain people. Besides, why should we forgive the loans of people working on Wall Street? They can pay off their own loans.
Answer: Many people might opt out of high-paying careers if they didn’t have $60K of debt hanging over their heads. Besides, it’s unfair to fault people who choose more lucrative careers—they may genuinely want the job. Let people make their own professional decisions free of student debt considerations.
Bob Negative: How can we pay for all of this, you socialist spend-thrift?
Answer: That’s a good question, and frankly, I’m not steeped in budget minutae enough to have a firm answer. There is $85 Billion Dollars in outstanding student debt in this country. I could use the old "if only we weren’t paying for Iraq!" canard, but the real answer may lie in forgiving loans along the lines of a graduated repayment system, with bigger debtors having their loans forgiven more aggressively. Or, we could forgive the loans at a rate of 5-10% a year, so those with heavier debt burdens would see their principal balances drop in dollar numbers more quickly. I wouldn’t even suggest they forgive every last dollar. People can manage $5,000 or even $10,000 in debt over ten or fifteen years—especially if we remove compound interest and switch to simple or even no interest. But it’s those facing $60K over 20 years that are crippled financially.
We could base forgiveness on income, or a formula based on income and outstanding debt. Clearly we can’t forgive it all in one lump sum. However, there are plenty of ways to do it, and while I’m sure people would argue with all of these ideas, the fact is we need to remove this impossible burden of debt from our generation if we’re expected to be able to contribute in other ways to our economy.
Honestly, I’m not concerned about the long-term viability of companies like Sallie Mae and other private lenders, who might indeed be crushed out of existence by loan forgiveness. Frankly, I loathe companies that get rich off of the backs of needy students who can’t afford their rising tuition. If the cost of shoring up the economy for generations is that a many predatory private lenders go out of business, I think I can live with that.
At the end of the day, that $85 Billion Dollars can either be invested in the economy, or repaid to student lenders, plus interest. Where would you rather see it go?
Bob Negative: This is going to turn us into Cuba, with all of those doctors and all, since education is free there. What if we turn into a country of perpetual students? Why do you want all of that education, anyways?
Answer: Loan forgiveness is not the same thing as open-door admissions to school—the latter is a function of individual universities deciding how many students they can manage to enroll. In fact, admissions will likely become more difficult if more people are suddenly able to afford more education. Loan forgiveness also doesn’t solve the problem of the ever-rising costs of higher education, nor does it make college completely free. What it does is free an entire generation of debt that would otherwise constrain their economic options for the rest of their lives. Buy a house, or pay off student loans. Save for retirement, or pay off student loans. Have kids, and/or educate them too, or pay off student loans. Should such a high percentage of our income go to our student loans, or to contributing to the economy?
Furthermore, if we look at the larger, looming economic crises in our country, not limited to health care costs, Social Security, and repayment of that stupid occupation of Iraq, it’s clear that taxes have to go up. We can’t pay higher taxes AND pay off all of that rising loan debt. If it’s one or the other, I’d rather have my money contributing to (re)building our society than to Sallie Mae.
Bob Negative: Education is only for the rich! This is the ownership society! If you can’t pay for it, you don’t deserve it! P.S. Get off my lawn.
Answer: John McCain, isn’t it past your bedtime?
Forgive my Fucking Loans, Kos!
This is an issue that can revitalize our economy, unite young voters, and help individuals overcome the massive systemic inequalities in our society. It’s a tall order, but the long-term prospects of NOT forgiving our loans are dire. As we age, our student debt will become an increasingly significant problem, as it also curtails our ability to invest in and advance our society.
The same thing that happened to those victimized by the mortgage industry will happen to our nation’s young people, unless we do something about it. I hope that once our candidate for president is decided we can push this person to include a campaign platform calling for increased student loan forgiveness. But, that’s a topic for another day.